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MINING NEWS: Teck Cominco delivers despite setbacks Higher lead prices, diverse assets buoy Canadian producer amid reverses at Red Dog, Highland Valley, Jericho and Galore Creek Rose Ragsdale For Mining News
Hammered by several significant reverses in the fourth quarter of 2007, Teck Cominco Ltd. managed to still turn a substantial profit and deliver $1.6 billion in full-year earnings.
Earnings plummeted to C$280 million, or 64 cents (Canadian) per share, in the fourth quarter, down nearly four-fold from C$866 million, or C$2.01 per share, during the final quarter of 2006.Year-over-year earnings also fell, dipping about one-third to C$1.62 billion from C$2.43 billion a year earlier.
Fourth-quarter revenues fell 26 percent to C$1.54 billion, compared with C$2.09 billion during the same period in 2006. Full year revenues also decreased slightly to C$6.37 billion from C$6.54 billion in 2006.
Teck Cominco blamed significantly lower prices for zinc (-38 percent) and coal (-26 percent), a stronger Canadian dollar and its effect on the company’s cost base, lower zinc sales volumes from the Red Dog mine in Northwest Alaska and reduced sales from the Highland Valley Copper Mine in Canada due to its life extension program for lower fourth-quarter revenues.
The reduced revenues were partially offset by higher lead prices and revenue increases from three new copper mines acquired from Aur Resources Inc. Teck Cominco also recorded C$51 million in after-tax asset impairment charges for its interest in financially troubled Tahera Diamond Corp. and the Lennard Shelf and Pend Oreille zinc mines as well as a C$50 million pre-tax (C$33 million after-tax) equity loss related to its investment in the costly but promising Galore Creek Project.
“While we faced a number of challenges in 2007, it was still a year with several solid accomplishments for the company,” Teck Cominco President and CEO Don Lindsay said in a statement. “We delivered the second highest earnings in our history at $1.6 billion and returned just over $1 billion to our shareholders through dividends and our share buy-back program, amongst the very highest returns in Canadian business,” said Mr. Lindsay.
Disappointments at Red Dog At Red Dog, Teck Cominco’s operating profit in the fourth quarter decreased 72 percent to C$174 million from C$623 million in the final period of 2006 due to lower sales volumes related to timing of shipments in 2006, lower zinc prices and negative pricing adjustments. During the quarter, negative settlements totaled C$49 million, of which C$10 million were price adjustments relating to sales from the prior quarter and C$39 million related to revaluation of current quarter sales that had not been priced at the end of the period.
The mine’s operating profit for the full year totaled C$819 million, down 24 percent from C$1.08 billion in 2006.
Zinc sales volumes at Red Dog in 2007 increased 7 percent to 575,700 metric tons due to higher production and the timing of shipments. Lead sales volumes rose 20.4 percent to 144,300 metric tons in 2007, up from 114,800 metric tons in 2006 due to higher production and strong smelter demand.
Zinc production in the fourth quarter was similar to a year ago at 134,300 metric tons, while lead production increased by 9 percent to 36,100 metric tons, compared with last year due mainly to higher grades. For the full year, zinc production totaled 575,700 metric tons, up 4 percent from 557,500 metric tons in 2006. Lead output for 2007 climbed 10 percent to 136,200 metric tons from 123,500 metric tons a year earlier.
In the third quarter of 2006, in accordance with the operating agreement governing the Red Dog mine, a royalty paid to NANA, the Alaska Native regional corporation partnered with Teck Cominco at Red Dog, increased to 25 percent of net proceeds of production. Earlier, the company paid an advance royalty of 4.5 percent of net smelter returns. The increase in royalty rate is partially offset by a decline in the base on which royalties are calculated as operating, distribution, selling and management fees, an allowance for future reclamation and closure costs, capital costs and deemed interest are deductible in the calculation of the royalty. The new 25 percent royalty became payable in the third quarter of 2007 after the company had recovered cumulative advance royalties previously paid to NANA. The NANA royalty charge in the fourth quarter of 2007 totaled US$68 million, compared with US$32 million expensed under the previous advance royalty regime in 2006. The net proceeds of production royalty rate will increase by 5 percent every fifth year to a maximum of 50 percent. The increase to 30 percent of net proceeds of production is set to occur in 2012. NANA ultimately will share about 62 percent of the royalty with other Alaskan Native corporations.
Improvements at Pogo At the Pogo Mine in Interior Alaska, gold production improved dramatically in the fourth quarter of 2007. The mine’s output, 80,900 ounces, represented a 40 percent improvement over the third-quarter performance, but remained below full capacity due to poor equipment availability, which impacted online time and throughput rate. For the full year, gold production at Pogo totaled 259,800 ounces. Cash operating cost per ounce was US$514 in the first quarter, but comparable costs for the full year are unavailable because operating results prior to April 1, 2007, the date the operation achieved commercial production, were capitalized as start-up costs.
Teck Cominco said its operating profit at Pogo totaled $2 million for the fourth quarter, but it suffered a $1 million loss overall for 2007.
The company made progress in addressing the processing challenges it has encountered at Pogo. Ore from the Pogo deposit is extremely abrasive, but continuous adjustments are improving equipment reliability. Mill recoveries are improving and various improvement projects are under way, including automation of the flotation circuit, which is expected to be completed in the first half of 2008.
Mine workers also made good progress on reducing dilution by using smaller equipment in the narrow ore headings during the second half of the year. Operating costs are expected to improve slightly in 2008, but will remain high over the next two years due to the large number of optimization projects and the need to develop additional areas underground to sustain planned production levels, the company said.
Gold sales of 74,400 ounces in the fourth quarter were lower than production due to the timing of shipments, and the average realized gold price was US$796 per ounce in the quarter. Efforts to reduce in-process gold inventory are ongoing with gold sales expected to exceed production in the first quarter of 2008.
Teck Cominco also said gold production at Pogo is expected to be between 340,000 and 360,000 ounces in 2008.
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